// Current market development of Green Pfandbriefe
“Green Pfandbriefe bring together security and sustainability aspects, which is highly appreciated by investors”.
An interview with Dr Frederik Kunze, NORD/LB Markets Strategy & Floor Research, Part 1.
How do you assess the current developments in the green bond market?
The market for sustainable bonds is clearly on a growth course. The sub-segment of green bonds can certainly be attributed the largest share of this dynamic at present. The growth rates in terms of the issuing volume of sustainable and especially green bonds are likely to remain high in the coming years. After all, we are not talking about a passing trend here, but rather about a further development of the international bond markets. As demonstrated not least by the numerous political initiatives, it is the bond markets in particular that can bring investors and issuers together with the aim of financing or refinancing sustainable investments in the long term.
Based on a rapidly growing market, what distinguishes covered bonds as a "green" product?
Green Covered Bonds or – on the German market - Green Pfandbriefe are characterised above all by the fact that they combine two aspects appreciated by a large number of investors. On the one hand, there is the aforementioned aspect of the possibility to invest in green bonds. A very good example of this is Green Mortgage Pfandbriefe. This product makes it possible, with a targeted selection of the loans to be financed or funded, to establish a concrete link to contributions to climate protection - for example in the form of saved CO2 emissions. This applies to energy-efficient construction and modernisation projects for flats and houses as well as to large-scale green commercial projects. On the other hand, covered bonds and Pfandbriefe as dual recourse products stand for a high degree of security, which we believe is highly appreciated by long-term institutional investors in particular.
How can investors be sure that green bonds finance or fund green assets?
An important component in this context is the transparency of the issuers and the associated clear guidelines of the institutions, which specify what is behind the funded assets and how this is reported. In their green frameworks, which form the basis for the placement of green bonds, the issuers of green covered bonds also regularly specify how the issue proceeds are to be used and how the processes and criteria for the selection of specific projects or financing are defined. The green framework - which is also evaluated by external experts - also defines how proceeds from the bonds are used and what contribution is made - for example to saving or avoiding CO2 emissions. In our opinion, transparency is a very important component here, also for potential investors.